Indonesian President Prabowo Subianto: "6.5% Increase in Minimum Wages for 2025"

In previous years, a deadline (regulated in a Manpower Minister Regulation) was set –typically in the third week of November– for all the governors and district heads to determine the new minimum wages. However, at the time of completing this report we are still waiting for the new Manpower Minister Regulation. Based on articles in Indonesian media, this regulation will be released in early December 2024.

But this doesn’t mean we can simply ignore this topic in our November 2024 edition, because at the end of November 2024 Indonesian President Prabowo Subianto did have an important announcement, namely that the 2025 minimum wages are to be raised (generally) by 6.5 percent. This is a higher growth rate than the 6 percent that had earlier been proposed by Indonesian Manpower Minister Yassierli. Moreover, it also constitutes significantly higher minimum wage growth than in 2024 when the provincial minimum wages rose by an average of 3.5 percent (year-on-year).

Table 1 shows Indonesia’s minimum wage growth (the average of all provinces) and also annual headline inflation (as price increases undermine the positive effects of wage growth).

And so, while we expect the 6.5 percent minimum wage growth announcement by Prabowo to be imposed by all regional leaders, it remains waiting for the Manpower Minister Regulation, followed by regional regulations that regulate local minimum wage growth.

The Minimum Wage Dilemma

In Indonesia, new minimum wages usually disappoint all related sides: workers and worker unions typically feel minimum wages grow too slowly, while their employers are disappointed by seeing the cost of production grow too steeply amid increasing minimum wages.

For the government it is important to stay somewhere in the middle as too strongly rising minimum wages damages the nation’s investment and business environment (and therefore undermine investment realization, which consequently undermines job creation and tax revenue collection). However, on the other hand, it is also in the interest of the government to have millions of satisfied workers (as they are voters in upcoming elections) who enjoy improving purchasing power (which also impacts positively on the national economy).

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